If you’ve being following my guide and putting the steps into practice you should come to a point where you are starting to build up some extra cash in your bank account.
It’s tempting to go out and reward yourself for your hard work and spend your little pot of money but now it’s time to make that pot of money work for you!
Putting your money work to you is the best way to keep building your wealth – the money you earn can earn more money and then that new money can earn money – it’s all about compound interest.
But how?
Making your money work for you is about investing the capital you have saved.
Three common areas to invest in and access are:
1. Cash
High interest savings accounts (HISA) and term deposits. HISA will pay monthly interest on your account balance. These accounts are offered by most banks and building societies, each account may have different rules about when and how much interest they will pay.
Term deposits are also with a bank or building society but you nominate a fixed term anywhere from 30 days right up to 10 years – the bank will offer a set interest rate for time period you choose. The banks pay interest on money you bank with them as they use this money to loan out to other people and companies,
Cash savings are a great place to start. Although cash rates are quite low right now, it is always good to have some cash that is easily accessible to you in case you have an emergency.
2. Shares
A share is basically part ownership in a company. Shares can pay income in the form of dividends and can also experience capital growth; where the price of the share goes up over time. You may have heard people refer to share ownership as being an owner rather than a loaner, this is because you actually have ownership in the company.
There are many different types of shares and different ways to access them, they can seem quite scary with all the updates of billion dollar share losses etc. on the news. However, as a medium to long term investment they can make your money work quite well for you and you don’t need lots of money to start. Brokerage costs (costs of buying and selling shares) can be prohibitive if you only have a small amount to invest; but there are some great ways that you can start to purchase shares with as little as $100 and pool the brokerage cost with other investors to reduce your costs.
3. Direct Property
Everyone in Australia seems to be pretty comfortable with property, it is after all the great Australian dream. This step is not referring to buying the property you intend to live in, it’s about investing to make your money work for you. By that rationale it should not be an asset you are living in. An investment property can be an effective way to make your money work for you. With a high entry price, you should probably consider cash and shares before jumping into property, they can be good stepping stones and very helpful in building up your deposit.
Property works best as long term investment.
Now you know different ways to start putting your money to work. Get to it! What’s stopping you from opening a high Interest savings account today?
Over your life you will ideally hold each of the above mentioned asset classes and as your wealth accumulates you will probably hold all of them at once.
Your only barrier to entry is yourself!